David Prosser: Reform the tax system and deliver a decent pension for all

Devastating new research from Datamonitor could be the final nail in the coffin for the Government's ailing pensions policy.

Devastating new research from Datamonitor could be the final nail in the coffin for the Government's ailing pensions policy. The market analyst says stakeholder pensions, launched four years ago as the solution to the country's savings crisis, have comprehensively failed.

After a strong start in the year the Government launched stakeholder pensions, sales have fallen dramatically. The number of plans sold dropped by 6 per cent a year between 2002 and the end of last year. During a period when financial experts have repeatedly warned that people are not saving enough for old age, sales of the Government's flagship pension product have collapsed.

We shouldn't be surprised by this disaster. Stakeholder plans appealed to savers who were already contributing to pensions, because they were a low-cost version of older products. But they did nothing to address the fundamental reasons why people aren't saving enough.

One problem is that many people just do not have enough spare cash to save for the future. This group includes many younger workers, who are often earning low salaries or struggling to repay student loans. Women are also over-represented in the "can't afford to save" category.

There is an even larger group of people who can only afford to put by relatively small sums. These savers face another huge problem: the ridiculous complexity of pensions, especially the interaction between the state and private-sector systems.

Currently, the state pension rules mean modest savers lose out. While poorer pensioners are entitled to claim the means-tested pension credit, by saving for old age, they disqualify themselves from this cash. So, unless you're confident of comfortably putting by more than you would get from the pension credit, you might as well not bother.

Without reform of the state system, there is little hope of any improvement in private pension saving. It's therefore encouraging that Tony Blair this week backed the idea of an automatic state pension paid to everyone over a certain age - pensioners would qualify through a basic residency test, irrespective of the National Insurance contributions they had made. Less happily, he quickly pointed out that a universal pension would cost several billion pounds more than the current set-up. He warned the cost could be prohibitive.

There is one obvious way to pay for more generous state pensions. The tax reliefs available to savers who pay into private pensions cost the Treasury a staggering £19 billion a year. The money is meant to be an incentive to save, yet the vast majority of those who contribute to private pensions would be providing for their old age even without these tax breaks. Perversely, higher-rate taxpayers - who need the least help to save - get the most generous tax breaks.

There is nothing to stop us reallocating some of the cash currently being wasted on pension tax relief. It could be used to underpin a universal pension generous enough to enable us to do away with means-tested benefits for pensioners.

The transformation would be remarkable. Everyone could look forward to a decent basic income in old age - including those who can't afford to save for a pension. Those who could afford to put by extra would do even better, free from anxiety about losing access to complicated means-tested benefits.

* Car dealers' reputation as sharks may not be entirely deserved, but there's no doubt that they charge way over the odds for finance. Yet two-fifths of car-buyers still take the loan on offer at the showroom.

Analyst MoneySupermarket cites the cost of buying a Ford Mondeo. Drive away with Ford's own finance package, costing 15.1 per cent a year, and your new wheelscost £22,500. Buy with a cheap personal loan, at about 6 per cent, and you pay £20,200, saving more than £2,000.

Car-buyers think long and hard about a new vehicle, but then sign up in an instant when they're offered an expensive finance package. If you plan to buy a new motor, now that March's 05 plates are available, sort out a cheap loan before you set off for a test drive.

Do your homework to beat the banks

Britain's biggest banks have been quick to point out that a large chunk of their mammoth profits is made outside of this country. Of HSBC's £9.2bn profit unveiled on Monday, for example, only £2.6bn was generated here.

Even so, there's no getting away from the fact that the banks are doing very nicely out of us all. But while it's right to get cross when this exploitation is exposed, we often have only ourselves to blame.

For example, despite a two-year campaign from Which? to persuade people to switch current account, the biggest banks retain 70 per cent of the market. Similarly, Barclaycard remains dominant in the credit card sector, despite rarely offering the best deal. Too many of us automatically troop down to our local big bank, whatever our financial need.

Maybe a lack of financial savvy is to blame. On-line bank Egg has been testing the nation's financial IQ with relatively simple questions about interest rates and inflation. The average Briton scores a pretty dismal 56, out of a possible 120.

You can sit the test for yourself online at www.financial-iq.co.uk. Use the results to identify your weak spots and then do some homework.

It's your only option. The big banks may not enjoy being criticised for profiteering, but they won't be shamed into action.

The only effective way to force them to offer a better deal is to take your business elsewhere. And that means knowing how to work out when you are being ripped off.


Independent Partners: 10 top tips for retirement. Get your free guide here

On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on oil keeping the First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
Arts and Entertainment
Lionel Messi in action for Barcelona
filmSo what makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style

Olympic diver has made his modelling debut for Adidas

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week